Aug. 6, 2018:
Q: We are considering adding auto-enrollment to our 401(k) plan and have seen many reports about the benefits of doing so. There seems to be no downside. Is that true?
A: Let’s start by saying that the upside of using auto-enrollment (and auto-escalation) features in a 401(k) plan are considerable. Participants in plans that use auto-enrollment seldom opt out, even when they are enrolled at 6%-10% of pay. This has resulted in many new participants saving for their futures. Recently, though, a study was done that suggests people who are automatically enrolled in their plan may take on more debt than they would have otherwise. According to an article on financialadvisoriq.com, the study’s co-author, James Choi, a professor of finance at the Yale School of Management, said that employees who were auto-enrolled had $1,563 more in consumer and automobile debt than those hired before auto-enrollment, and they owed $4,131 more on their mortgages. Those figures amount to more than the additional $3,237 on average saved by the workers who were auto-enrolled. Please don’t let this information discourage you from adding auto-enrollment. Rather, use it to inform your plan communication efforts. If you address budgeting, debt and other financial wellness topics, you may be able to offset any negative impact participants could experience.
Provided by Doug Fletcher - Prepared by Kmotion, Inc. Copyright 2018.
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